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The Price Impact of Lending Relationships

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  • Ingrid Stein

Abstract

type="main" xml:id="geer12057-abs-0001"> This study analyzes the impact of bank relationships on a firm's borrowing costs. We find that a firm's borrowing costs decrease with relationship strength, proxied by the share of bank debt provided by the lender. Borrowing costs, however, rise with relationship length. While the increase over time is weak on average, bank-dependent borrowers face a substantial premium after several relationship years. Switching the lender initially leads to only a small price discount on average. However, the discount is considerable for borrowers that switch and had a strong relationship with their previous lender. Our results suggest that close lending relationships lead to benefits for the firm, but may also imply hold-up costs in the long term.

Suggested Citation

  • Ingrid Stein, 2015. "The Price Impact of Lending Relationships," German Economic Review, Verein für Socialpolitik, vol. 16(3), pages 367-389, August.
  • Handle: RePEc:bla:germec:v:16:y:2015:i:3:p:367-389
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    File URL: http://hdl.handle.net/10.1111/geer.2015.16.issue-3
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